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To describe the extreme swings in sentiment about India, an analyst recently quoted Marilyn Monroe: "If you can't handle me at my worst, then you sure as hell don't deserve me at my best."

The promise of India's young, growing, entrepreneurial population has been overshadowed by a substantial economic slowdown, rising fiscal deficit, high inflation, and policy paralysis. Between the threat of a debt downgrade and this summer's blackout that laid bare India's infrastructure woes (and left more than a half-billion people in the dark), investor sentiment has been in the dumps.

The situation got bad enough to shake the government out of its dithering state. In a matter of two weeks, Prime Minister Manmohan Singh did what investors had waited for since his second term began in 2009: He unveiled a range of reform measures. He proposed cutting diesel subsidies to rein in India's burgeoning fiscal deficit, and opened the aviation, broadcasting, and retail sectors to foreign direct investment, to help attract capital from abroad. There are also reforms aimed at the power industry, with offers to restructure struggling companies' debt in return for their agreeing to charge higher tariffs that should ultimately fund improvements to stabilize the power grid.

There's no question that these efforts pale when compared with the reforms Singh spearheaded as finance minister in 1991 or even in 2004. But they are something, and Singh appears ready to fight any political backlash. Investors have responded enthusiastically. In the past two weeks, the MSCI India index is up 8.5%. And while emerging-market funds have pulled money out of India over the past five months, inflows are near $2 billion this year, double last year's, according to EPFR Global. All this should help India attract the foreign capital that can, in turn, boost the rupee and alleviate inflationary pressure.

Ranjit Rajamani, senior analyst for the Boston Company Asset Management's team that oversees $8 billion in emerging-market assets, says he is cautiously optimistic, with "cautiously" being the operative word. Even if the reforms were passed carte blanche, he says India still faces problems, including declining industrial production and slumping earnings. And the reforms won't send India's expected growth rate of 6% back toward the high single digits overnight.

With the majority of India's consumers under the age of 35, it's easy to understand why consumer names top many managers' favorites. But these stocks are pricey, leading many to now hunt in other parts of the market—including more cyclical financial or industrial sectors. Marc Tommasi, head of global investment strategy for $42 billion Manning & Napier, says companies such as Larsen & Toubro (ticker: LTOUF.India), a technology, engineering, and construction outfit, and Bharat Heavy Electrical (BHEL.India), a power-plant equipment manufacturer, can benefit as the country focuses on infrastructure bottlenecks.

Zee Entertainment (ZEEENTER.India) also could benefit as foreign firms moving into India boost advertising spending. For a more diversified approach, investors could buy shares of the
Matthews India Investor
Fund (MINDX), which owns smaller consumer names, as well as industrial stocks. It's in the top percentile of India funds over the past three years, with an average 6.6% return.

Money managers say the measures, on their own, aren't reason enough to invest in India. But for those who can find well-run companies to weather the worst, the prospects once India gets back to its best may be as alluring as Marilyn Monroe. Well, almost.